High interest debt and no emergency savings? Here are your options.

Many of us are swimming in debt.

As of the second quarter, US households have about $17.796 trillion in debt, which breaks down to about $104,215 per household. Mortgage debt represents approximately 70% of household debt. Credit card debt is up to $1.142 trillion, with households carrying an average balance of $6,501, in addition to high interest-bearing debt.

Meanwhile, nearly a fifth of Americans have no emergency savings.

In fact, according to a new Empower report titled “In Case of an Emergency,” the average amount of emergency savings for Americans is just $600.

If you’re in that camp, should you build an emergency fund? Or do you pay off debt first?

Ideally, your goal should be to save at least three to six months of emergency living expenses. Unfortunately, we can’t predict serious life changes or a loss of income, but you should at least have peace of mind knowing you have some sort of cushion.

Simple ways to pay off debt

There are three ways to approach high interest debt.

One is to focus on smaller balances first. That way, you free up even more money for the heavier debt. Then, once the smaller debts are paid off, you now have new cash flow to tap into to make additional payments on the higher interest balances.

Of course, that’s easier said than done at this point. I understand. But slow and steady wins the race.

Second, you could just make minimum payments on all the debt and put some towards the highest interest expense. Or three, you could take out a consolidation loan, wipe out all of your outstanding debt, and have just one balance. Not only can this allow you to manage your debt a little better, but it can also allow you to put extra funds into an emergency account.

When it comes to debt, remember to breathe. things will be ok

Start saving

Saving three to six months of expenses is also easier said than done.

If you can’t change that, start small with an emergency savings goal of at least $1,000. Sure, it’s small, but it’s a safety net and it’s a start. In fact, if you can put away about $85 a month, you’ll reach that goal and have some wiggle room. However, make sure you store this in a separate ‘don’t touch’ account, automatically depositing money every time you get paid. Additionally, if you ever receive another source of income, such as a bonus or gift, put it directly into that “don’t touch” account instead of spending it right away.

Or, look at your current spending habits to save.

For example, how often do you go out to eat, compared to saving a few dollars and a few calories by eating at home? How often do you have drinks with friends? Maybe you have subscriptions that you could live without for a while. Sure, you should have fun and live life to the fullest with your money. But maybe cut here and there.

Small achievable goals created with a clear plan can help you pay down debt and build emergency savings.

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